Sweden's Billionaire Boom Sparks
Pandemic Tax Dilemma
Covid-19 inequality needs a response, but there are better
options than a broad wealth levy.
By Lionel Laurent
June 2, 2021, 2:20 AM EDT
Lionel Laurent is a Bloomberg Opinion columnist covering the
European Union and France. He worked previously at Reuters and Forbes.
Wealthy Swedes were among the first to warn that the
pandemic would bring crippling social and economic costs. When Covid-19 struck,
industrialist Jacob Wallenberg staunchly opposed draconian lockdowns, fearing
devastating unemployment and social unrest.
That chimed with the Swedish government’s relatively
hands-off approach to social distancing. The economy and civil liberties were
protected, though ultimately at the cost of a higher death toll than
neighboring countries, drawing anger from voters and the royal family. The
country’s image of being a “moral superpower” was broken.
Today the economy is racing back to pre-pandemic levels, but
a new socioeconomic challenge is brewing: inequality.
Rich Swedes are now richer, with financial markets juiced by
central-bank liquidity and a vaccine-led rebound. Five of the country’s top
billionaires added a combined $18 billion to their total wealth over the past
year, according to data compiled by Bloomberg. A property boom is helping mint new millionaires, with prime
Stockholm real-estate prices up 7.7% year-on-year, according to Knight
Frank. (That’s better than San Francisco and London.) A rich seam of tech talent and soaring valuations for
startups like Klarna Bank AB are& stoking excitement among bankers.
At the same time, Sweden’s services sector has shed jobs
and its immigrant population has struggled to find work. Inequality as
measured by household disposable income is higher than it was in the 1980s,
according to the central bank.
The stark contrast is leading to a now-familiar refrain: a
possible wealth tax. Finance Minister Magdalena Andersson, keenly aware of the
damage to Sweden’s brand as a strongly egalitarian market with a
cradle-to-grave welfare state, is dangling the idea of a levy on millionaires.
Sweden has historically been a more equal place than most of the rich world,
but there’s new anxiety after Covid. It’s rare to see such a widening gap
between those who own property and
shares and those who don’t, according to Bloomberg Intelligence analyst
Johanna Jeansson.
In this case however, a broad wealth tax just isn’t the best
way to address burgeoning inequality, no matter how politically attractive the
theory.
For Swedes, the disappointing reality of wealth taxes is
still within living memory.
The country scrapped
a long-running wealth tax
in the mid-2000s (along with a host of other levies on capital) that encouraged
capital flight and discouraged investment. At its peak, aggregate
revenue from the measures never topped
0.4% of gross domestic product in the postwar period, according to a 2014
Nordic Tax Journal paper. On the eve of its abolition, it accounted for a
measly 0.16%. This disappointment,
mirrored elsewhere, is why such taxes on the wealthy are more debated than
deployed.
A one-off Covid solidarity tax as seen in Argentina might seem more effective —
some $2.4 billion has been collected by levying as much as 5.25% of assets’
value from the Latin American country’s richest people. But such a measure
would need a very deft political touch to convince citizens the move is a
one-off, and to keep investor confidence intact amid the pandemic.
It would also fail to fundamentally address Sweden’s
longer-term inequality challenge: Knight Frank forecasts that by 2025 the
number of Swedes with more than $30 million of net wealth will rise by 59%.
Sweden’s government should instead take a more surgical
approach and target a root cause of
the wealth gap, namely inflated asset
prices. Property, for example, enjoys low taxes that are capped. That
incentivizes investors to keep on buying and prices out those that don’t or
can’t. The OECD’s recent recommendations rightly advocate a shift away from
generous mortgage tax treatment and low
taxation on real estate.
The country’s lack of
an inheritance tax deserves a rethink. Without one, accumulated asset
wealth will be easily passed on to Sweden’s many family scions just as the
pandemic has thrown up more obstacles to less fortunate young people such as educational
inequality.
In a country where the ranks of the asset rich are growing,
even these moves would take political courage. Somewhat dispiritingly,
Andersson seems to have ruled out the idea of including property in a future
levy on wealth. Aspiring Wallenbergs may face a reckoning one day, but not yet.
This column does not necessarily reflect the opinion of the
editorial board or Bloomberg LP and its owners.
To contact the author of this story:
Lionel Laurent at llaurent2@bloomberg.net
To contact the editor responsible for this story:
Melissa Pozsgay at mpozsgay@bloomberg.net
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